Including a Symposium on Latin American Monetary Thought by Fiorito Luca;Scheall Scott;Suprinyak Carlos Eduardo;

Author:Fiorito, Luca;Scheall, Scott;Suprinyak, Carlos Eduardo;
Language: eng
Format: epub
Publisher: Emerald Publishing Limited
Published: 2018-11-03T00:00:00+00:00

THE EVOLUTION OF THE FUNCTIONS OF THE CENTRAL BANK

The Central Bank was conceived as an institution independent of the government (“It is not conceivable that a Central Bank be managed by governments”)10 to permit a more rational distribution of monetary functions and more efficient management of reserves, whose main objective was monetary stability, along conventional lines.

Prebisch thought that the Central Bank had a role to play in cushioning the effects of the economic cycles although he found illusory to think that it could offset the movements of the cycle. As he put it (Prebisch, 1932, p. 64) “To expect that ondulatory movements in the economic activity of the country can be offset by the excellence of a monetary system would be to fall in the same illusion harbored by many economists of the United States with respect to the Federal Reserve, prior […] to the […] collapse. But it cannot be doubted that the amplitude of those movements could be cushioned by an efficiently run Central Bank.”11

Prebisch’s focus on countercyclical policy is also reflected in the fact that the BCRA did not incorporate the proposal of Niemeyer of raising the rediscount rate when the proportion of reserves in relation to the emission fell below 33%, in particular because Prebisch had a greater concern with the need to use the discount window rate as instrument of anti-cyclical policy, an instrument that had already been used in 1931 to avoid a liquidity crisis (Pérez Caldentey & Vernengo, 2012a, p. 16). The same is the case of exchange controls.

It is important to note that while the use of the rediscounts and exchange control was viewed in 1931 as something temporary, and they were not discarded with the creation of the BCRA in 1935, the idea was that they would be eventually abandoned. However, as will be explained in the following sections, the crisis of 1937–1938 and the beginning of the restrictions caused by the war in 1939 gave rise to the use of unorthodox instruments and a more finished conception about the need to use them on a more permanent basis in the countries of the periphery.

At the stage of the creation of the BCRA, the lean against the wind monetary policy was reflected in one of the key objectives of the Central Bank as set out in Prebisch’s 1934 project. This was to ensure an adequate level of reserve accumulation as part of a precautionary motive of building buffer stocks to confront export shocks and sudden capital stops. As he put it (Prebisch, 1937, Vol. II, pp. 610–611): “The ascending movements are, in general, of a limited duration. The opportunity to repair the consequences of past wrongs and accumulate reserves for difficult times, whose return it is prudent to foresee, should not be then undermined.”

It is important to understand that the cushioning of the fluctuations of the business cycle did not respond to the objective of maintaining domestic output stability but rather to that of maintaining monetary and price stability. In this

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.